Investing in Commercial Property: What You Need to Know
Investing in commercial property has risen in popularity amongst UK investors in recent years. However, since the pandemic, desire is not necessarily at an all-time high.
If you are investing in commercial property, you may already have previous experience in what you are looking for to receive the best ROI.
If you have just started looking at investing in the property market, you may wonder which route to take and how you can make your finances work most effectively. As a first-time investor, buy-to-let may be the best option for you!
What to consider when investing in commercial property
Each property investing process is different for every investor. Here at Knight Knox, we have compiled our expertise into the key points of consideration when investing in commercial property. While there are many positives to investing in commercial property, there are also some considerations that you need to know before taking the risk.
Lower demand
The workplace is expected to evolve in the next five years, and a study in 2021 stated that 58% of businesses asked were expecting to decrease their need for office space in the future. Most businesses found themselves working from home due to the Covid-19 regulations in the last two years, and many of them had to sadly close entirely.
The demand for commercials may continue to decrease even after the pandemic if businesses are afraid to take the risk of renting. A lot of companies have continued to allow employees to work from home even after restrictions have been lifted, so it is expected that office space could soon be a thing of the past.
A much higher initial investment
Investing in commercial property often requires higher capital upfront in comparison to residential. Looking after multiple tenants in a commercial property runs the risk of costly unexpected expenses and repairs. The interest rates for commercial property BTL mortgages can be up to 6% higher than a residential loan. You will also need to pay business rates if your property is vacant, which could cost a fortune if the building is empty for longer than expected.
Higher chance of risks
Commercial use properties will have a much busier footfall, which increases the risks of damages and accidents. The responsibility of commercial property is more stressful and time-consuming than buy-to-let opportunities. Commercial tenants also risk going into liquidation, which can strain investment income.
Time commitment
If you aren’t committed to your duties as a building owner, it is unlikely that you will maximise the return on your investment. Commercial properties come with multiple leases and safety concerns, and if you are not on top of them, you will not be able to reap the benefits. There will also be a lot of detailed documentation to read and negotiate before you can go ahead.
Why it’s time for buy-to-let
The advantages of buy-to-let are endless. Regardless of concerns such as Stamp Duty Tax and Brexit, buy-to-let is the best option to start your property portfolio in style. There will always be demand for buy-to-let properties because people will always need somewhere to live. As house prices continue to rise, demand for rental properties will continue increasing.
The refurbishment costs of residential properties tend to be more affordable, with BTL residential mortgage deposits 25% lower than commercial properties. There is often a quicker turnaround between purchasing property and tenants moving in since there is far less remedial work and a more straightforward buying process.
Seek advice from professionals today
Investing in your first property can feel like a risky but equally exciting prospect. Knowing what questions to ask and the initial steps will help the process run smoothly and leave more time to reap the benefits. Get in touch with us today to find out more about how we can advise you.
